Friday Letter Admin fandango

To the outsider it may seem an odd time to be ramping up exposure to the fund administration industry, but to those involved in real estate it makes perfect sense. 

Third party fund administrators have not always enjoyed the best of reputations among chief financial officers of private equity firms. However, they are at least showing themselves to be as resilient as the clients they serve.

Last week, JP Morgan Private Equity Fund Services, which has a large collection of private equity, real estate and infrastructure fund clients, said it was adding a Channel Island presence to the London office it established last year.

The move makes sense. Jersey has become increasingly popular of late as a tax-efficient jurisdiction. More than 400 private equity and real estate funds were domiciled or administered there as of the end of 2007.

That same week, mid-market private equity firm RJD Partners backed the management buyout of Guernsey-based IPES Holdings, another provider of outsourced fund administration services. IPES administers more than 300 funds for 56 clients. As well as Guernsey, it operates from offices in Jersey and London.

At first glance, it may seem an unusual time to be increasing one’s exposure to fund administration services, especially those focused on real estate clients in Europe. After all, property values are falling in most markets.

But as professionals in the real estate world know, the decline in transaction volumes appear not to have led to a marked reduction in the number of first-time funds or follow-up vehicles being launched. If anything, the administrators are awash with business. Asia, in particular, is proving to be a hotbed of activity, with fund administrators adding to their regional branch networks by opening up in the region. Some far-sighted firms are also eyeing Latin America too.

The sheer volume of new funds is keeping the fund administration business buoyant. In addition, there are many forces at work persuading fund managers to outsource chunks of back and mid-office functions. Cost and the freeing up of manpower are two main reasons, but demand among investors for more timely, accurate and transparent reporting is also a key driver

True, there remain a good proportion of third party advisors who are not doing much to enhance their reputations, in some of the worst cases chief financial officers end up doing the work they have supposedly outsourced. Nevertheless, the fund administration industry is constantly evolving and becoming increasingly sophisticated. The best advisors are continuing to attract new business and, unless the pipeline of funds in market suddenly dries up, they will continue to do so.